soil erosion from overgrazing, industrial development, urbanization, and poor farming practices; soil salinity rising due to the use of poor quality water; desertification; clearing for agricultural purposes threatens the natural habitat of many unique animal and plant species; the Great Barrier Reef off the northeast coast, the largest coral reef in the world, is threatened by increased shipping and its popularity as a tourist site; limited natural fresh water resources

Australia has an enviable Western-style capitalist economy, with a per capita GDP on par with the four dominant West European economies. Rising output in the domestic economy, robust business and consumer confidence, and rising exports of raw materials and agricultural products are fueling the economy. Australia's emphasis on reforms, low inflation, and growing ties with China are other key factors behind the economy's strength. The impact of drought, weak foreign demand, and strong import demand pushed the trade deficit up from $8 billion in 2002, to $18 billion in 2003, $13 billion in 2004, and $16 billion in 2005. Housing prices probably peaked in 2005, diminishing the prospect that interest rates would be raised to prevent a speculative bubble. Conservative fiscal policies have kept Australia's budget in surplus from 2002 to 2005.